Average Indexed Monthly Earnings
Encyclopedia
The Average Indexed Monthly Earnings (AIME) is used in the United States
' Social Security
system to calculate the Primary Insurance Amount
which decides the value of benefits paid under Title II of the Social Security Act under the 1978 New Start Method. Specifically, Average Indexed Monthly Earnings is an average of monthly income received by a beneficiary during their work life, adjusted for inflation.
Each calendar year, each covered worker (this excludes certain domestics
with very low earnings and others like municipal employees hired before the mid 1980s who opted out of the federal Social Security program) wages up to the Social Security Wage Base
(SSWB) is recorded along with the calendar by the Social Security Administration
in Baltimore, Maryland. If a worker has 35 or fewer years of earnings, then the Average Indexed Monthly Earnings is the numerical average of those 35 years of covered wages; with zeros thrown into the average
for the number of years less than 35.
However, because of wage inflation
the federal government indexes wages so that $35,648.55 earned in year 2004 is exactly the same as $23,753.53 earned in 1994. Those two figures came from the yearly list of National Average Wage indexing series http://www.ssa.gov/OACT/COLA/AWI.html. This series gross up earlier years wages so that all years earnings up to age 60 are put on equal footing. Because it takes more than one year to fully collect such data, and because some people have January birthdays, the age 62 calculation done in 2006 must be based on the most recent data
which is the 2004 national average wage. By law, all covered workers who attain age 62 in 2006 must be treated the same with respect to wage indexation so the 2004 figure for national average wage must be used for the entire 2006 year. Thus the age 61 and age 62 wages will get a bonus because they will not be indexed downward.
For workers with more than 35 years of covered wages, the Average Indexed Monthly Earnings will only take the average of the 35 highest years of indexed covered wages. This figure is then divided by 12 to get a monthly rate. Thus the self-describing name "Average Indexed Monthly Earnings".
The following table shows the Wage Index in effect during each year:
Thus the factor used in 2009 to index 1951 wages is 14.435 = $40,405.48 / $2,799.16, i.e. the ratio of the 2007 Wage Index (two years before 2009) to the 1951 Wage Index.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
' Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
system to calculate the Primary Insurance Amount
Primary Insurance Amount
The Primary Insurance Amount , for the purposes of the Social Security Administration, is the amount which is used as the beginning point in calculating any benefit payable under Title II of the Social Security Act...
which decides the value of benefits paid under Title II of the Social Security Act under the 1978 New Start Method. Specifically, Average Indexed Monthly Earnings is an average of monthly income received by a beneficiary during their work life, adjusted for inflation.
Each calendar year, each covered worker (this excludes certain domestics
Domestic worker
A domestic worker is a man, woman or child who works within the employer's household. Domestic workers perform a variety of household services for an individual or a family, from providing care for children and elderly dependents to cleaning and household maintenance, known as housekeeping...
with very low earnings and others like municipal employees hired before the mid 1980s who opted out of the federal Social Security program) wages up to the Social Security Wage Base
Social Security Wage Base
For the Old Age, Survivors and Disability Insurance tax or Social Security tax, the Social Security Wage Base is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed...
(SSWB) is recorded along with the calendar by the Social Security Administration
Social Security Administration
The United States Social Security Administration is an independent agency of the United States federal government that administers Social Security, a social insurance program consisting of retirement, disability, and survivors' benefits...
in Baltimore, Maryland. If a worker has 35 or fewer years of earnings, then the Average Indexed Monthly Earnings is the numerical average of those 35 years of covered wages; with zeros thrown into the average
Arithmetic mean
In mathematics and statistics, the arithmetic mean, often referred to as simply the mean or average when the context is clear, is a method to derive the central tendency of a sample space...
for the number of years less than 35.
However, because of wage inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
the federal government indexes wages so that $35,648.55 earned in year 2004 is exactly the same as $23,753.53 earned in 1994. Those two figures came from the yearly list of National Average Wage indexing series http://www.ssa.gov/OACT/COLA/AWI.html. This series gross up earlier years wages so that all years earnings up to age 60 are put on equal footing. Because it takes more than one year to fully collect such data, and because some people have January birthdays, the age 62 calculation done in 2006 must be based on the most recent data
Data
The term data refers to qualitative or quantitative attributes of a variable or set of variables. Data are typically the results of measurements and can be the basis of graphs, images, or observations of a set of variables. Data are often viewed as the lowest level of abstraction from which...
which is the 2004 national average wage. By law, all covered workers who attain age 62 in 2006 must be treated the same with respect to wage indexation so the 2004 figure for national average wage must be used for the entire 2006 year. Thus the age 61 and age 62 wages will get a bonus because they will not be indexed downward.
For workers with more than 35 years of covered wages, the Average Indexed Monthly Earnings will only take the average of the 35 highest years of indexed covered wages. This figure is then divided by 12 to get a monthly rate. Thus the self-describing name "Average Indexed Monthly Earnings".
Indexing yearly income
Earnings in all years prior to two years before the current year are indexed for inflation. This is done by multiplying the amount credited to the Social Security earnings record in any given year by an indexing factor. The indexing factor is the ratio of the Wage Index two years before the current year to the Wage Index during the earnings year.The following table shows the Wage Index in effect during each year:
| Year | | Wage Index | | Year | | Wage Index | | Year | | Wage Index | |
|---|---|---|---|---|---|---|
| 1951 | $2,799.16 | 1971 | $6,497.08 | 1991 | $21,811.60 | |
| 1952 | $2,973.32 | 1972 | $7,133.80 | 1992 | $22,935.42 | |
| 1953 | $3,139.44 | 1973 | $7,580.16 | 1993 | $23,132.67 | |
| 1954 | $3,155.64 | 1974 | $8,030.76 | 1994 | $23,753.53 | |
| 1955 | $3,301.44 | 1975 | $8,630.92 | 1995 | $24,705.66 | |
| 1956 | $3,532.36 | 1976 | $9,226.48 | 1996 | $25,913.90 | |
| 1957 | $3,641.72 | 1977 | $9,779.44 | 1997 | $27,426.00 | |
| 1958 | $3,673.80 | 1978 | $10,556.03 | 1998 | $28,861.44 | |
| 1959 | $3,855.80 | 1979 | $11,479.46 | 1999 | $30,469.84 | |
| 1960 | $4,007.12 | 1980 | $12,513.46 | 2000 | $32,154.82 | |
| 1961 | $4,086.76 | 1981 | $13,773.10 | 2001 | $32,921.92 | |
| 1962 | $4,291.40 | 1982 | $14,531.34 | 2002 | $33,252.09 | |
| 1963 | $4,396.64 | 1983 | $15,239.24 | 2003 | $34,064.95 | |
| 1964 | $4,576.32 | 1984 | $16,135.07 | 2004 | $35,648.55 | |
| 1965 | $4,658.72 | 1985 | $16,822.51 | 2005 | $36,952.94 | |
| 1966 | $4,938.36 | 1986 | $17,321.82 | 2006 | $38,651.41 | |
| 1967 | $5,213.44 | 1987 | $18,426.51 | 2007 | $40,405.48 | |
| 1968 | $5,571.76 | 1988 | $19,334.04 | 2008 | $41,334.97 | |
| 1969 | $5,893.76 | 1989 | $20,099.55 | 2009 | $40,711.61 | |
| 1970 | $6,186.24 | 1990 | $21,027.98 |
Thus the factor used in 2009 to index 1951 wages is 14.435 = $40,405.48 / $2,799.16, i.e. the ratio of the 2007 Wage Index (two years before 2009) to the 1951 Wage Index.
Computation
The following steps should be taken to determine the Average Indexed Monthly Earnings:- Determine the Base Years (BY) (see Primary Insurance Amount#1978 New Start Method)
- Select the highest years of indexed and unindexed earnings to serve as Computation Years (CY) in the amount of the number of BY
- Add the indexed and unindexed earnings in the CYs to come up with the dividend
- Divide the dividend by divisor months (see Primary Insurance Amount#1978 New Start Method) to get the Average Indexed Monthly Earnings
- Round the Average Indexed Monthly Earnings down to the nearest dollar